For more than two decades, public health scholars and proponents have demonstrated concern about the negative effects of trade liberalisation on tobacco control policies. However, there is little theoretically-guided, empirical research across time and space that evaluates this relationship. Accordingly, we use one major region that has experienced rapid and significant recent liberalisation, Southeast Asia, and examine key tobacco control-relevant outcomes between 1999 and 2012. While we find a modest increase in regional trade in tobacco products in some countries, the effects on tobacco affordability and consumption are very mixed with no clear link to liberalisation. We argue that widespread penetration of the region by transnational tobacco firms is likely mitigating the effects of trade liberalisation. Notably, tobacco control policies have also generally improved across the region, part of which is likely the result of successful regional and global efforts by civil society, governments and intergovernmental organisations. The results suggest that scholars and public health proponents should move the focus away from narrow economic aspects of liberalisation toward specific issues that are more likely to affect tobacco control, such as intellectual property rights protections and investor–state dispute settlement.

Discussion and conclusions

The very mixed results above across key aspects of the trade and tobacco nexus suggest that there is no clear-cut link between trade liberalisation and a decline in tobacco control and/or an increase in tobacco consumption in Southeast Asia. One popular proposed solution to mitigating trade liberalisation’s effects on tobacco control is a total exclusion of tobacco from future economic agreements. While there are some obvious benefits to this proposal, it is not clear that it is politically viable or that it will have particularly large positive effects for public health.

In terms of tobacco exclusion’s political viability, the broader task of affecting trade negotiations successfully is challenging, not to mention the additional burdens of returning to hundreds of previously negotiated economic agreements.61 In each case, proponents would have to convince the appropriate political actors that a policy of tobacco exclusion is necessary and appropriate. These actors almost surely include governments’ trade officials and negotiators, but probably also legislators and/or other major political actors. Many of these actors will have strong preferences and/or vested interests that preclude supporting such initiatives. Moreover, in a consensus-based context such as ASEAN, such efforts would have to occur successfully across all members.62 A high-ranking trade official in the Philippines noted that no key trade or finance officials in ASEAN countries are openly supportive of this proposal (interview, 8 April 2013). With literally thousands of products and hundreds of discrete issues up for negotiation in most agreements, prospects for change of this nature are dim.

Tobacco exclusion may even be problematic in some circumstances by perpetuating market structures that serve strong pro-tobacco interests (eg, by preserving the market share of a particularly politically strong TTC). It is no mistake that in two major recent economic agreements, the Pacific Island Countries Trade Agreement (PICTA) and the South Africa–European Union Trade, Development and Cooperation Agreement, it was a major TTC operating in favourable domestic conditions pushing governments for an exclusion policy (personal communication with South African treasury official, 23 April 2013).

If one of the ultimate goals is to affect price positively (and thereby reduce consumption), tobacco excise taxes are typically a superior strategy to trade barriers such as tariffs because they are non-discriminatory, can be made specific to quantity or unit, and can even be designed to account for inflation and income growth.51 Tariffs as a tobacco control tool may have the perverse consequence of permitting domestic tobacco manufacturers to thrive, while having limited or no effect on price, affordability and/or consumption. While it is true that decreased competition generally leads to higher prices, it remains the prerogative of the domestic industry to set prices to optimise their goals. For example, a protected domestic firm or industry might set certain products at lower prices to encourage initiation of use and then raise prices only after solidifying its consumer base through the products’ profoundly addictive nature.63

Similarly, if one of tobacco control proponents’ ultimate goals is to counteract aggressive marketing by the tobacco industry, it might be more prudent to pursue FCTC-compliant bans on tobacco advertising, promotion and sponsorship. These bans do not discriminate between domestic and foreign products, but rather, address all tobacco products and thereby prevent domestic firms from taking advantage of a potentially privileged status in a domestic market.64,65 However, such bans might preserve market shares forcing firms to compete more aggressively on price.66

Without doubt, there remain enormous challenges at the economic policy–tobacco control nexus: the extant case study evidence cited above suggests strongly that there are very serious challenges to public health. But the public health community must identify better the precise causal mechanisms, and develop some viable and sophisticated solutions. Simply arguing the trade liberalisation is bad for tobacco control and that excluding the tobacco sector from economic agreements is the solution is a suboptimal strategy in terms of how it addresses the challenges and its likelihood for effective implementation. As all ASEAN countries negotiate the evolving Regional Comprehensive Economic Partnership with regional neighbours (Australia, China, India, Japan, Korea and New Zealand) and some ASEAN members consider their membership in the even more comprehensive Trans-Pacific Partnership (TPP), the impetus to find the most feasible and effective balance among health and economic commitments could not be larger. Public health proponents’ concern about the TPP appears founded as even a US Trade Representative proposal to include a safe harbour for tobacco control regulations is reportedly no longer under consideration (as of late 2013).67

Instead, the public health community must target efforts toward the largest, most pressing and potentially problematic substantive problems. For example, the Uruguay labelling and Australia plain packaging challenges demonstrate clearly that investor–state dispute settlement provisions in BITs pose genuine risks to tobacco control, not least of which because wealthy TTCs have the opportunity to bully small or even larger countries in the unpredictable setting of international arbitration. Similarly, the public health community must push negotiators firmly and unequivocally not to privilege the protection of intellectual property rights over governments’ moral and legal obligations to regulate for the broader public health. Economic agreements are not likely going away any time in the near or medium term, so the public health community needs to be better prepared to make appropriate and effective requests and demands.

This study examines the variables that may influence physicians’ choices of medication for their patients and the effect of the entry of me-too drugs on the market of breakthrough and generic drugs. Using the 2006 National Ambulatory Medical Care Survey (NAMCS), drugs belonging to the drug classes statin, cardioselective beta blockers, proton pump inhibitors and selective serotonin reuptake inhibitors were classified as generic, breakthrough and me-too drugs and analyzed separately. This study uses the discrete choice model of demand in analyzing the relationship between physician prescribing behavior and patient, physician and drug characteristics. This study found age, sex, race, ethnicity and number of current medication influence physicians’ prescribing behavior. Some physicians tend to prescribe one type of drug over the other. The study also found an indication of moral hazard. Price, direct-to–consumer advertising and certain characteristics of drugs that may indicate quality affect the likelihood of a drug to be prescribed.

The findings on the effect of direct-to-consumer advertising expenditure of me-too drugs on the market share of generic drugs and breakthrough drugs give empirical support to the proposed policy of approving new drugs on the basis of their efficacy against existing drugs in the market. With direct-to-consumer advertising, the findings of this study suggest that me-too drugs may reduce the market share of breakthrough drugs and generic drugs. It implies an increase on prescription drug spending but with little associated quality gain. The study validates previous findings that me-too drugs compete with breakthrough drugs and reduce incentives to invest in research.

]]>5810The Failure of the Real Property Tax in Local Governmentshttp://aer.ph/the-failure-of-the-real-property-tax-in-local-governments/
http://aer.ph/the-failure-of-the-real-property-tax-in-local-governments/#respondThu, 18 Nov 2010 08:15:10 +0000http://aer.ph/wp/?p=3633This paper, authored by Maita Gomez of Action for Economic Reforms, seeks to address the problems and obstacles faced by LGUs in the generation of revenues from their most stable and most substantial source, real property. The focus of the study is on the poor performance in Real Property Taxes (RPT) collection, on acts and practices that abet, enable and constitute partial or complete evasion of these taxes. After the author’s introduction, the objectives, methodology and scope are described. The section on Real Property Taxation by Local Government Units discusses the implementation of basic RPT and Special Education Fund (SEF), the implementation of other taxes on property, and the revenue performance of property taxes.

The author then calls attention to the successes and failures of RPT implementation as regards record keeping and computerization, estimation of the amount of tax due, collection of delinquent RPT, and amnesties and auctions. A discussion on tax evasion and corruption follows, and the author ends with several conclusions and recommendations based on four identified issues.

]]>http://aer.ph/the-failure-of-the-real-property-tax-in-local-governments/feed/03633Philippine Fiscal Incentives: A Note on Design, Administration, and Contexthttp://aer.ph/philippine-fiscal-incentives-a-note-on-design-administration-and-context/
http://aer.ph/philippine-fiscal-incentives-a-note-on-design-administration-and-context/#respondThu, 18 Nov 2010 08:11:56 +0000http://aer.ph/wp/?p=3630The main idea of this paper on Philippine Fiscal Incentives written by Cristina Morales-Alikpala, is that while fiscal incentives, in their current design, administration, and context, may have proven to be of little value when it comes to encouraging investments, the notion of providing effective subsidies to worthy investors should not altogether be abandoned.

This paper aims to review the economic rationale behind investment incentives, particularly in the Philippine context, and formulate recommendations for future policy decisions that will hopefully enrich the discourse on the desirability of investment incentives. The following section focuses on the economic rationale for investment incentives. Afterwards, the structure of Philippine fiscal incentives is discussed. Two papers assessing Philippine fiscal incentives, Medalla (2006) (2006) and Reside (2006; 2007), are reviewed in detail. In an effort to enrich the ongoing discourse regarding rationalization of fiscal incentives, a review of strategic industrial promotion strategies employing such fiscal incentives is presented. Finally, policy recommendations are set forth and future directions for research are suggested.

The literature has focused on motives to explain remittance behavior. But as non anonymous transfers, remittances are apt to be influenced by giving norms as well. We formulate an empirical specification that takes account of remittance motives involving worker?household pairs. We find that altruism dominates the exchange motive among overseas workers who are likely to be the primary breadwinners of their recipient households. We also find that, in the subsample in which overseas workers are likely to be secondary breadwinners, (a) household labor income is an endogenous explanatory variable and (b) the error covariance of the household income and remittance selection equations is positive. A possible reason for (a) is that
secondary breadwinners use household income as an imperfect signal of opportunity cost or to detect unobserved effort, i.e., moral hazard, in generating income. As for (b), we surmise that it indicates the presence of incentive?compatible mechanisms against moral hazard. On giving norms, we find that, in samples that include overseas workers who are secondary breadwinners, remittance amounts are afflicted with negative selectivity. We present evidence that this is consistent with Filipino giving practices, in which everyone gives but in modest amounts.

]]>http://aer.ph/motives-and-giving-norms-behind-remittances/feed/0772Undermining abundancehttp://aer.ph/undermining-abundance/
http://aer.ph/undermining-abundance/#respondThu, 27 Nov 2008 02:41:49 +0000Roberto Verzola is a convenor and member of the Philippine Greens. He is active in information, environmental and agriculture issues. He may be reached at rverzola@gn.apc.org.

Abundance creates commons

If we review history, and perhaps prehistory as well, we would see that abundance has often led to the creation of commons. In communities that respond to abundance by treating it as a common pool resource, community members tend to act cooperatively to manage the commons so that the goals of social justice and sustainability are met and the risk of failure in abundance is minimized.

Commons management involves not only economic rules but also cultural and political factors such as conscious community decisions, appeals to the common good, and the values of sharing, cooperation, altruism and community spirit. It often relies not only on prices but also on restrictions, prohibitions and taboos. Ancient tribes and other traditional societies have evolved complex social norms of behavior and hierarchies of communal use and access rights that have served them well in managing abundance and the commons for many generations. Similar norms have likewise evolved among successful modern commons such as free/open source software and the Wikipedia.

Their institutions and methods for governing the commons have proved even more useful for threatened resources as well as resources that have actually become scarce, by helping meet goals of social justice and sustainability. In a number of instances, fishing grounds and forest reserves have been nursed back to abundance, thanks to the proper management of these commons.

A modern political economy of abundance and scarcity

Thus, a rich heritage of theory and practice in managing abundance and coping with scarcity exists and may be found in the literature of the commons. This heritage was overlooked by many for several decades after Hardin observed in 1968 that a “tragedy of the commons” ensued when rational gain maximizers exploited the commons in pure pursuit of selfinterest.

This has led governments to take over these commons as State property or turn them over to corporate interests through privatization, oftentimes creating worse tragedies. What can be worse than the tragedy which befell Russia, when the common wealth of its people – literally the product of their sweat, tears and blood –became private property overnight of Party bureaucrats-turned-capitalists? Subsequent studies have since shown that Hardin’s “tragedy” was by no means universal, and that successful practices in managing the commons continue to serve many communities today.

Hardin’s analysis of his herders and pasture example was also too simplistic. Hardin argued that a rational herder would gain for himself +1 unit per additional head, and split with other herders the 1 unit damage to the pasture. He concluded that the positive net gain will drive every herder to keep adding heads to the pasture until the commons collapses. Hardin’s riskblind herder does not take into account the risk to his own perpetual income stream created by each additional head he puts to pasture. A riskwise herder, weighing the gain from each additional head against the increasing risk of losing his perpetual income stream, will stop adding heads before the probability of losing that income stream reaches 100%, which occurs as carrying capacity is exceeded.

Every herder should get a clear signal as the risk increases, because he will be getting less gain per unit effort as the pasture deteriorates. Here is a potentially selfregulating system that requires no unrealistic assumptions like perfect knowledge or perfect competition.

A foolhardy herder who needs the +1 gain badly enough may still risk not only his own but also everyone else’s perpetual income stream. Since each one could, one day, face a similar situation of urgent need, they may eventually realize that it would be better for each herder to contribute a small amount to raise the +1. This suggests, as a longterm solution, a system of insurance or social security, a type of commons that reduces individual risk by pooling resources.

]]>http://aer.ph/undermining-abundance/feed/0771Migration and remittances have positive impact on gender equality in the Philippineshttp://aer.ph/migration-and-remittances-have-positive-impact-on-gender-equality-in-the-philippines/
http://aer.ph/migration-and-remittances-have-positive-impact-on-gender-equality-in-the-philippines/#respondThu, 05 Jun 2008 03:44:55 +0000{mosimage}The study “Gender, Remittances and Local Rural Development: The case of Filipino migration to Italy”, assesses the impact of remittances sent by Filipino migrants in Italy for promoting gender-sensitive local rural community development in the Philippines and supports capacity-building activities with migrant associations to improve the living conditions of Filipino migrants in Italy. (Download the study here ).

The case study, published by UN-INSTRAW, the International Fund for Agricultural Development (IFAD) and the Filipino Women’s Council (FWC), was carried out in Rome (Italy) and selected rural communities in the Philippines’ provinces of Pampanga, Batangas, Ilocos Sur, Oriental Mindoro and Tarlac. Researchers collected qualitative data during 2 round-table sessions and 132 in-depth personal interviews with 61 migrants in Rome and 71 members of migrant households in the Philippines.

The high feminization of migration from the Philippines was one of the reasons that the country was selected for a case study of the impacts of women’s migration. Moreover, Italy is the 6th most popular destination country amongst Filipino migrants (preceded by Saudi Arabia, Hong Kong, Japan, Taiwan, and the United Arab Emirates) and hosts the largest number of Filipino migrants within Europe (followed by Spain, Greece, and Austria).

According to the Commission of Filipinos Overseas, there are currently 128,080 Filipinos residing in Italy (2006). “The Filipino community in Italy is more feminized than any other migrant group and is highly concentrated in the domestic service sector, characterized by its intense demand for foreign female labour. In cities like Rome and Milan, female Filipino migrants account for up to 70% of all Filipino migrants”, stated Carolina Taborga, Social Affairs Officer at UN-INSTRAW.

Of the 12.8 billion dollars Filipino migrants sent back to the Philippines in 2005, 44 million dollars were sent from Italy, making Italy the fourth largest source of remittances. According to the UN-INSTRAW/IFAD/FWC study, Filipino women in Italy send remittances back home more regularly than their male counterparts. In Rome, 85.3% of women and 64.7% of men interviewed stated that they sent regular remittances to the Philippines each month. In general, regular remittances involve sending fixed amounts of money, averaging between €300 and €400 per month, which represents roughly half of the minimum salary of €600 per month earned by Filipino migrants.

The study revealed that for most recipient households, these monthly transfers act as a kind of salary, representing between 25% and 50% of total household income. This money is used to cover basic consumption (food, clothes, electricity, etc.), education and health. When remittances are sent regularly they can also serve to pay a caretaker, a domestic worker or a person who will be in charge of dependent persons in the migrant women’s household.

“While women privilege investment in their children, particularly in education, men are inclined to invest in consumption goods, assets or property. However, if women succeed in covering basic consumption needs, education and health, they tend to invest in a house or in land for agriculture. As former tenants become land owners, these farmers are more willing to invest in technology for improving both the quantity and the quality of their harvests and for diversifying the types of products they cultivate,” pointed out Maria Hartl, Technical Adviser in Gender and Social Equity at IFAD.

When the migrant is married with children, remittances will usually be sent to the spouse. If both adults of the married couple go abroad, remittances are generally sent to the eldest child to administer, or to the children’s temporary guardian. This is also the case with migrant single mother. When the migrant has a choice, women are actually often chosen over men to receive and manage regular household remittances.

According to the migrants and household members interviewed, the reasons behind this trend are related to women’s traditional role as caregivers and domestic administrators in the Philippines and their consequent in-depth knowledge of the household’s basic needs. Women are perceived as “thriftier” and more responsible when handling money intended to benefit the household as a whole.

The study further demonstrated that migration and remittances have had a number of positive impacts on gender equality in the Philippines. First of all, migration seems to have economically empowered many women, as it has increased and diversified the employment opportunities available to them.

“Some women in this study were able to transition from unpaid subsistence agricultural work to the administration of small businesses, which has led to changes in their power and status in their households and communities of origin. Likewise, the investment of remittances in children’s studies has increased their levels of educational attainment, particularly among the daughters of migrants, opening up new opportunities for future generations of women,” stressed Carolina Taborga.

The direct participation of the Filipino Women’s Council members in the collection and validation of the data was fundamental to supporting the capacity building activities of Filipino migrant associations. FCW participants were able to build on prior knowledge in this area, understand how could benefit the organizations’ future strategy, and raise awareness about the potential of remittance-based development amongst Filipino migrants and their families.

“With the insight we have gained from having participated in this process, it is now imperative that Filipino migrant associations are supported both financially and technically in the proposals they have developed to promote positive change and overcome current challenges to local/community development”, stated Charito Basa of FWC.

The UN-INSTRAW/IFAD/FWC study points to an urgent need for increased awareness among Filipino migrants -men and women- about available alternatives for sending remittances and their potential for promoting rural development in communities of origin.

In addition, the study calls for organizing public hearings, discussions, seminars and training activities etc. on remittance-based development in the Philippines and working with financial institutions to develop services specially targeted to women migrants/remitters and recipients.

This has been posted in this website with permission from UN INSTRAW. You can also read UN INSTRAWS’s media kit (facts and figures, fact-sheets, quotes of Filipino migrants, photo gallery and voices from the field) here . Cover picture by Charito Basa.

As a lifelong observer of the Philippine development story, I have noted one lesson that stands out among all others: Underdevelopment is not a story about the dearth of resources but about blown opportunities. William Shakespeare in Julius Caesar gave perhaps the most eloquent rendition of the genesis of underdevelopment: “There is a tide in the affairs of men that taken at a flood leads on to fortune: omitted, all the voyages of their life are mired in the shallows and in miseries.”

The Philippines missed the tsunami of Japanese direct foreign investment in the second half of the 1980s because we could not get our political act together. The monumental collapse of the Marcos project in the early 80s was preceded by a flood of borrowed petrodollars for which we inherited nary but a slew of white elephants and bankrupt state banks. The ready availability of forest and extractive resources allowed the perpetuation of the increasingly unviable beauty parlor industries in the 50s and 60s. We have not yet stopped counting the cost to the nation of the NAIA Terminal 3 fiasco! It is scary how as a nation, we have managed to transform the opportunities imbedded in available resources into a litany of “miseries.” This it seems is bigger than Dutch Disease.

There is, as we speak, a spectacle rising up along Commonwealth Avenue in Quezon City, that will buoy you up as it does me every morning I pass by. The Ayala Land–University of the Philippines Science and Technology Park stands as a cornerstone of the future we all wish for this country – global in outlook, high technology at its core, unfazed by competition. It will be a dollar earner for the country – a rare example of seizing the day. But alas, even before the first locator has moved in, its potential revenue in peso terms has already been slashed by 19% in 2007 alone! This, in my humble opinion is unconscionable, even given the general weakness of the dollar.
Are we on the verge of blowing yet another great opportunity?

A question naturally suggests itself to dismal scientists: Is current growth sustainable? The devil, they say, is in the details and there are others, the detail that bugs us most is the rapid appreciation of the Philippine peso. What if any is this bug’s message?

]]>http://aer.ph/the-peso-appreciation-and-the-sustainability-of-philippine-growth-need-we-worry/feed/0769A Tale of Two Concessionaires: A Natural Experiment of Water Privatisation in Metro Manilahttp://aer.ph/a-tale-of-two-concessionaires-a-natural-experiment-of-water-privatisation-in-metro-manila/
http://aer.ph/a-tale-of-two-concessionaires-a-natural-experiment-of-water-privatisation-in-metro-manila/#respondThu, 17 Jan 2008 19:38:59 +0000Introduction

The 1990s saw an unprecedented wave of water privatisation around the world. Public water utilities’ failure to expand service coverage and improve service quality prompted municipalities in many developing countries to turn to the private sector for investment capital, technical expertise and efficiency improvement (Dosi and Easter, 2003). In addition, water privatisation was perceived as a means to end government subsidisation by ‘depoliticising’ water pricing; public water utilities often priced water and sanitation services at below cost-recovery level, creating enormous financial burdens for governments in developing countries. The political environment during the decade was highly favourable to water privatisation as pro-market politicians rose to leadership positions in many countries and international financial institutions were actively promoting market-oriented reforms in the developing world through loans and technical assistance programmes (Hall et al., 2005). By the end of 2000, at least 93 countries had experimented with water privatisation in one form or another (Brubaker, 2001).

The ‘exuberant enthusiasm’ for the water privatisation, however, was soon subdued by harsh realities marked by renegotiation, termination and cancellation of privatisation contracts and projects. A World Bank database on infrastructure revealed that, by 2002, 75 per cent of contracts for water privatisation in Latin America and the Caribbean had experienced either renegotiation or cancellation (Gómez-Ibáñez et al., 2004). In Asia, the rate of water privatisation has slowed considerably since the Asian fi nancial crisis, as a number of high-profile water privatisation projects have been abandoned or cancelled due to disputes over water tariff increases (Hall et al., 2004).

Some critics have argued that water privatisation is ill-fated because the public benefits of water services are inherently incompatible with the profi t motive of the private sector (Estache et al., 2001; Birdsall and Nellis, 2002; Smith and Hanson, 2003). Others have held that water privatisation compromises access to water as a basic human right and that it harms the welfare of the poor (Gleick et al., 2002; Scanlon et al., 2004).

Although arguments against water privatisation have gained currency in recent years, the urgency of the water crises that led to privatisations during the 1990s remains unchanged to the present day: more than 1.1 billion people world-wide lack safe drinking water and 2.4 billion lack adequate sanitation (Kessides, 2004). The situation is especially acute for many rapidly growing small cities in developing countries: more than half of the residents in these cities do not have water connections (Hewett and Montgomery, 2001). Inadequate urban water supply systems place a greater financial burden on the urban poor, as a disproportionately high percentage of poorer households lack access to piped water (Johnstone et al., 2001; Marvin and Laurie, 1999). Studies have shown that unit costs for water from vendors (who often supply to the urban poor) can be as much as 10 times higher than for water from piped connections (Crane, 1994; Chogull and Chogull, 1996).

The importance of access to safe drinking water to poverty reduction is highlighted by the stated intention of the Millennium Development Goal (MDG) to halve the number of people without safe water access by 2015. Enormous fi nancial resources are needed to reach this ambitious goal; estimates from the World Bank early in the new century indicated that developing countries would need US$60 billion for the water sector over the next 10 years (Haarmeyer and Coy, 2002). It is clearly unrealistic to expect governments in developing countries to finance this development entirely on their own. Private-sector participation will continue to be among the few options available to municipalities in many developing countries and especially to the increasing number of fast-growing small and medium-sized cities.

Meanwhile, despite the many criticisms levelled at water privatisation, no empirical evidence has emerged to suggest that funding problems are so inherent in the water supply sector as to pose insurmountable barriers to privatisation. In fact, one recent study (Galiani et al., 2005) has shown that water privatisation reduced child mortality by 5–7 per cent in Argentina, with the largest gains in reduction experienced by the poorest population. Although some research has shown that effi ciency was not significantly different in private and state-run water operations (Estache and Rossi, 2002; Kirkpatrick WATER PRIVATISATION IN MANILA 209 et al., 2004), no empirical study has confirmed claims that private water companies are necessarily less efficient than their public counterparts or that water privatisation hurts the urban poor. Given the importance of private-sector participation to the success of global efforts to alleviate inadequate and unsafe water supplies, it is of paramount importance to understand where, when and how water privatisation could be successfully implemented.

The voluminous literature on water privatisation offers little information about the impact of privatised water utilities’ management practices on how privatisation has fared in developing countries. Studies of previous water privatisation cases have typically focused on external factors such as political support, institutional structure, design of contract, transparency of bidding process, public perception and impacts of unforeseeable events (Johnstone et al., 2001; Shirley and Menard, 2002). These factors, undoubtedly critical determinants in the success or failure of water privatisation, are nevertheless external conditions in the sense that they are outside the control of privatised water utilities. We argue here that privatisation involves transformation in ownership structure and organisational culture within water utilities and that how the transformation is managed at the company level has a direct bearing on the outcome of privatisation.

One plausible explanation for the lack of scholarly work on the impacts of internal factors on water privatisation is that it is methodologically challenging to assess what these internal factors are and how they function. First, it is fairly difficult to disentangle the effects of internal factors from those of external factors, as they are often intermixed and shaped by particular conditions, such that case studies detailing water privatisation in a specifi c locality cannot usefully generate definite conclusions about the effects of internal factors. Secondly, external factors are often more visible and thus more tractable analytically than internal factors, because it is easier to obtain information on external factors than on internal factors, which may not be readily available in the public domain. Thirdly, statistical tools such as regression analysis may offer only limited insights on internal factors because localised peculiarities can be hard to quantify and to compare meaningfully.

The recent history of water privatisation in Metro Manila presents a unique opportunity as a natural experiment to analyse and compare the effects of internal factors on the success of privatisation efforts in an urban context. When Manila’s Metropolitan Waterworks and Sewerage System (MWSS) was privatised in 1997, metropolitan Manila was divided into two zones and concession contracts were accordingly awarded to two companies, Maynilad (West Zone) and Manila Water (East Zone). Because the two concessionaires faced the same external factors—for example, political support, institutional structure, contract design, transparency of bidding process and locally shared unforeseen events—the analyst can concentrate on differences in internal factors and study the effects of these differences on the success and failure of water privatisation.

The discussion continues by developing theoretical linkages between water privatisation and three internal factors: corporate governance, financial management and operations management. An overview of the evolution of water privatisation in Metro Manila sets the stage for analysis and comparison of the performance of the two concessionaires after privatisation, in terms of how differences in internal factors have contributed to the different paths that they took and the outcomes they experienced. The fi nal discussion summarises important results of the analysis and addresses their implications for water privatisation policy and for innovation in public water utilities.

Having confounded its critics by weathering the most profound political challenges and having averted what had seemed an ineluctable fiscal crisis, the Arroyo administration is now on a self-proclaimed “legacy mode”. For many, this is a welcome sign, a hopeful promise of relief. What most people think it ought to mean is a stronger commitment henceforth by the administration to a coherent vision and to policies to bring it about; a greater focus on priorities patently accepted as being in the public interest; and a greater devotion to transparency and professionalism in decision-making to gain all-party support and legitimacy for such major initiatives. At the very least, one would have thought, the administration should henceforth steer clear of policies and projects that were so obviously biased and egregiously one-sided that they tended to stir controversy rather than invite cooperation and support – or so one might have thought.

It is unsettling, therefore, that so soon after the mid-term elections (the conduct of which is another issue altogether), the administration should again be embroiled in a mess of its own making. The wonders and mysteries surrounding the government’s most recent initiatives on information and communications technology (ICT) are quickly threatening to abort the administration’s attempts to resurrect its credibility, not to speak of “establishing a legacy”. Two projects in particular have quickly become controversial: the first is the government’s project to build its own digital communications “backbone” called the “national broadband network” (NBN); the second is the proposal to link public schools via a satellite-supported network to enable pupils and teachers to access the internet and other resources.

The bold vision

The irony of it all is how everything began so auspiciously, sensibly, and with the best intentions – on paper, anyway. After all, it is hardly debatable that providing the greater mass of people with digital access to data and communications through greater bandwidth is a matter worthy of national-government attention. It is already evident that the rapid growth of the services sector in the gross domestic product (GDP), for example, is based in no small degree on the increasing utilization of the digital information and communications infrastructure. Unlike the country’s physical transport and logistics infrastructure, which have been neglected for decades, the Philippines’ information and communications infrastructure has been the recipient of recent massive (mostly private) investment. Ubiquitous cell-phones and the network supporting them are only the most visible aspect for the layperson. Unseen for the most part, however, is how a good deal of the digital “information highway” is really built upon two “backbones” or networks of optic fibre, linking the entire country and providing access to the rest of the world. These backbones – one is owned by PLDT while TELECPHIL is jointly owned by all other telecoms companies – have come to support numerous new industries, ranging from business-process outsourcing (BPO), to electronic payments and clearing systems (e.g., ATMs and credit and cash cards), down to internet and gaming cafés. Because of such investments, it is significant to note that the Philippines actually scores respectably on e-readiness and connectivity for a country with its level of income.1 This is more than can be said for other types of infrastructure.

Nor is there any doubt that substantial social dividends are forthcoming from the extension of the same access to data and communications to hitherto underserved government offices and to the country’s vast schools system.

The administration was quite on the mark, therefore, when the president outlined the idea of a “cyber-corridor” in her 2006 state-of-the-nation (SONA). That vision, as fleshed out subsequently in the Commission on Information and Communications Technology’s (CICT’s) strategic ICT roadmap, called for greater broadband access, inter-operability and connectivity, and for the diffusion of such cost-saving technologies as VOIP (voice-over-internet protocol) and digital conferencing. As many ICT experts have pointed out – and as government itself recognized – a major constraint to connectedness in the country was the “last mile” problem. In short, even as “information highways” might connect various islands, provinces, cities, and indeed the world, there are few or no links connecting them to final users, such as communities, households, schools, as well as local units and agencies of government. It is as if expressways had been built but not the municipal and barangay roads that would connect people to such high-speed lanes. A related problem, of course, is that few people own the “vehicles” (read: computers and peripherals) needed to travel such roads, metaphorically speaking.

The original mode the government envisioned to develop and expand that cyber-corridor was also unexceptionable. Government’s plans, as well as their subsequent elaborations, invariably pressed for a public-private partnership, where the private sector would be “implementor” and the government the “enabler” in the context of the “ICT Roadmap” [Sales 2006 Message of the Chairman]. Indeed, the proposed Government ICT Project (Annex A-2 (2001)) viewed its Alternative Communications Program (ACP) as “a private activity, wherein it will undertake to finance, build, install, operate and maintain telecommunications facilities and provide basic telecom­mu­nications…in 34,000 unserved barangays and telecenters and 1,500 municipalities of the country”.

The DOTC’s Philippine Information Infrastructure Program also envisioned the “development of a robust and expanded digital infrastructure with the private sector playing a major role” (Strategy 1) [Emphasis supplied]. The thrust was to enhance the inter-operability and the connectivity of all networks to attain “universal access” at affordable cost. The currently available broadband backbones (those of the telephone companies (telcos) and the National Power Corporation) would serve to fill the country’s urgent need for ample, universal, and affordable broadband access. The brunt of the work was expected to consist of providing “last-mile” and missionary connections (i.e., connections to remote and inaccessible areas).

It is essential to note that original government plans at no point envisioned a separate backbone to be financed, owned and operated by, and dedicated to the needs of the government. At worst, what was recommended was a market-mediated build-operate-and transfer (BOT) plan. During the cabinet meeting of 21 November 2006, President Arroyo was reported2 to have taken the (correctly) adamant position against government spending for any backbone. Her strongly expressed stricture was at most for a BOT arrangement without “take-or-pay” provisions – and for good reason. After all, such “take-or-pay” provisions – under which government commits to pay a fixed amount to the private supplier, whether or not it makes any use for the service – were the culprit behind the huge losses and stranded liabilities of the National Power Corporation, which were a large reason for the administration’s fiscal woes. A consistent policy to rely primarily on private-sector initiative was also the motive behind the government’s proposal to privatize its own network (the Telecommunications Office, or Telof). This clearly meant that the government planned to rely mainly on existing privately-owned backbones as the conduit for the government’s broadband program.

Up to the early this year, therefore, most of the government’s plans for expanding IT access appeared consistent and benign. Indeed, they seemed to draw and build upon the logic and success of past privatizations, which had either brought in revenue, promoted efficiency, better service, or both (e.g., revenue in the sale of San Miguel and Napocor; efficiency in the privatization of water-supply concessions).